In true Dickensian style, a magnificent gift has arrived at the doorstep of Charles Dickens's only surviving London home, just as volunteers were decking the walls with holly and ivy.

The tall, narrow house in Doughty Street, Clerkenwell, where Dickens lived for three years from 1837, has been awarded a £2m grant by the Heritage Lottery Fund, in time for a comprehensive renovation before the bicentenary of the author's birth in 2012.

The house is full of treasures, but shabby and badly in need of the first major refurbishment since it was built. It was preserved from the modernisation that gutted most of its neighbours because it went down in the world and became a cheap lodging house, so many original features survive.

New displays will be created in the house next door, which the trust also owns, allowing the Dickens house to be restored, rescuing it from the current lino-covered floors, a library in what was the kitchen and scullery – where museum director Florian Schweizer likes to envisage Mrs Dickens, like Mrs Cratchit, boiling the Christmas pudding in the wash house copper. An exhibition space will crammed into what was Dickens's bedroom.

It was the house where Dickens was born as an author: while he lived there he published Nicholas Nickleby under his own name, with his portrait, abandoning the "Boz" pen-name he used as a young journalist. It was also where he celebrated his first family Christmases, and began the invention of the definitive Christmas in his writing, complete with snow, carol singers, party games, and frosty hearts melted into philanthropy.

His drawing room is being decked out in Victorian Christmas finery, and Schweizer will take to the streets in frock coat and tall hat to announce that the museum is one of the few places in London to open on Christmas Eve, Christmas Day and Boxing Day – with mince pies and mulled wine to the author's original recipe.

The house was also where his beloved sister-in-law Mary died in his arms, aged 17, providing the model for all the doe-eyed young women who die heart-wrenchingly in his books, from Little Nell to Dora.

News of the grant was welcomed by authors including Claire Tomalin, who is about to publish a new biography of Dickens; actor Simon Callow, who has recreated the Dickens readings that were the Take That sellout tours of his day; and author Philip Pullman, who said the nation needed the museum. "We need to remind people of what a treasure we have in his work and how lucky we are to have him still alive in his books."

Other fans include the actor Matt Damon – who plays a Dickens-loving psychic in Clint Eastwood's new movie, Hereafter, partly filmed in the museum – and Eastwood himself.

The house contains the most important collections in the world of Dickens memorabilia: first editions, manuscripts, and furniture including the reading desk he had built to his own design for the performances where he became so caught up in the most thrilling passages, such as the murder of Nancy by Bill Sykes, that he was left in a state of collapse. The museum also has his doctor's records of monitoring the performances, noting his pulse rising from normal to dangerous levels as he read.

The house has been a museum since 1925, when the Dickens Fellowship bought it by public subscription to save it from the threat of demolition. It was formally opened by the politician Lord Birkenhead on Dickens's birthday, 9 June, when so many people turned up that he had to address the crowds blocking the street from one of the balconies.

The museum must be open again by 7 February, the bicentenary of the author's birth, and the launch of a major Dickens festival across London. All Schweizer now has to do is raise a further £900,000 so that work can start: like Mr Micawber, he is confident that something will turn up.